PPC ends merger talks with LafargeHolcim; proposes top-up BEE transaction

15 December 2017

Cement producer PPC’s shares fell by nearly 20% in early morning trade on the JSE on Thursday, after announcing that it has ended merger talks with LafargeHolcim and that it is considering a new black economic empowerment (BEE) transaction.

The independent board set up by PPC to evaluate bids from third parties that had shown an interest in acquiring PPC has advised LafargeHolcim that it does not want to pursue a transaction.

It has instead suggested that PPC shareholders will gain more value from PPC optimising its current business strategy by prioritising the development of its existing investment pipeline in the rest of Africa, executing its megaplant strategy in South Africa and embarking on a renewed optimisation programme to further improve PPC’s competitiveness in a subdued market.

Investment company Fairfax Africa Investments’ earlier this week withdrew its R2-billion share offer, while Ireland-based cement producer CRH earlier this month decided not to submit an updated expression of interest.

African cement producer Dangote withdrew from its talks with PPC in October.

Meanwhile, PPC has proposed a top-up BEE transaction to increase PPC South Africa’s (PPC SA’s) BEE equity shareholding to an effective 30%.

The proposed BEE transaction for 24.6% of PPC SA will be added to the existing residual 5.4% BEE equity shareholding the company has from transactions concluded with BEE shareholders in 2008 and 2012.

The proposed new transaction will include PPC SA employees through an employee share ownership plan; communities through a community development trust, which will not be a vesting trust and will provide benefits for the communities through dividends paid; and a BEE special purpose vehicle, which will be for direct equity shareholding in PPC SA by black entrepreneurs.

The employee trust and the special purpose vehicle will have a tenure of ten years before maturing, while the community trust will be evergreen.

The transaction value will be disclosed when detailed terms of the proposed transaction are announced, which is likely to occur in the first quarter of 2018.

The transaction will be funded through a notional vendor funding (NVF) structure, which does not create any liability on either PPC’s or the participants’ balance sheets, PPC said in a statement.

New shares in PPC SA will be issued to the participants’ equity shareholding vehicles for a nominal subscription price per share.

The transaction will be implemented through the NVF structure at a fixed escalation rate. The NVF will be serviced through dividends payable to participants and participants would be entitled to receive a certain portion of their dividends as a trickle cash payment during the term of the transaction and to the extent that PPC SA declares a dividend.

The outstanding balance on the NVF shall be settled at maturity through a repurchase of shares held by the participants in PPC SA, based on an agreed NVF formula and at the same nominal subscription price at which the shares were issued. 

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